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JP Morgan says potential UK rate rise unlikely to hit housebuilders

British housebuilders are unlikely to take a major hit from a rise in interest rates, US broker JP Morgan Cazenove said on Tuesday.

The industry's shares fell 5% on Friday after Bank of England Governor Mark Carney said an interest rate hike - which would be the first change in borrowing costs since March 2009 - may happen "sooner than markets expect".

But any rise would be likely to affect the market only modestly and would not hit sector earnings, JP Morgan said in a note.

The broker said the industry's under-performance in the year so far had tracked rising expectations of rate increases.

"However, we continue to view a resulting impact on sector earnings as unlikely," it said, adding, "Given we expect a rate hike to be associated with improving economic conditions, we expect limited impact on market conditions".

Even if house price inflation halved and year-on-year rises in mortgage approvals fell to zero from 11%, JP Morgan said it would stay comfortable with its estimates, supported by strong underlying margins, orders and the UK government's Help to Buy shared equity scheme.

"We continue to believe a housing market recovery is still in its relatively early stages and should be supported on a long-term sustainable basis by new policy designed to limit risky mortgage lending," it added.

Shares in housebuilders were mixed on Tuesday, with Barratt Developments rising about 1% to 347.1p, Persimmon up 1.4% to 1204p and Bellway gaining 0.3% to 1454p, but Taylor Wimpey retreating 0.4% to 102.9p and Bovis Homes off 0.13% to 742.5p.

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